Naperville Area CHamber of Commerce Government Affairs Roundup

The City is finalizing the budget process, and we are coming down to the most important questions. To put it simply, should the cost of the City Budget be set at $451,398,341? If yes, how exactly should the City of Naperville pay for that level of spending? There’s a lot to get to, so let’s dive right in.

There’s too much to go through, so big picture, the budget represents an approximate 2% increase over last year. City Staff’s recommendation includes proposals to maintain the three financial principles: to pass a structurally balanced budget, to continuously improve the delivery of necessary and cost-effective services and increase cash reserves by 25% and reduce debt by 25% by the end of 2022.

The City continues to work towards efficiencies including potential staff reduction requested in the last budget process between the Settlement, the Library, and City Hall. We continue to support these efforts and hope that sharing HR and other resources will allow the City to maintain service levels while reducing the cost to the residential and corporate taxpayers.

In addition, there was significant discussion around a proposal for Ogden Sign Conversion and how many dollars should be allocated for that in the budget. The City seeks to convert existing and non-conforming pole signs along the Ogden corridor to monument signs. The NACC has had extensive feedback from our Membership on this issue. In so far as the program is voluntary, then many of our Members are interested in exploring the possibility with the City.

How Should Naperville Pay for the $451.4 Million in Proposed Spending?

If City Council votes to approve the spending figure outlined above, the question turns to exactly how to pay for it. There was extensive conversation at the budget workshop around two primary options: allowing the real estate tax levy to increase with the rise in property values or to raise the food and beverage tax. These are not official proposals, and final decision is not due on Dec. 4, but both have major policy implications so it’s worth going into depth on what they could mean for local businesses.

Real Estate Tax Levy

City Staff’s recommendation is to allow the property tax levy, or the total dollars collected, to rise while holding the property tax rate constant. The City of Naperville would then capture the rise in value of each individual property as well as the value of new construction as revenue to balance the budget.

Proponents point to the fact that the City has a historically low rate because of the current policy to drive down the total levy. For example, since 2016 the rate has dropped by 7.8% which has saved Naperville residents and commercial property owners significantly. The proposed increase from City Staff would cost the average Naperville homeowner approximately $35.

In addition, City Staff points to the need to diversify revenue streams while pointing to the fact that nearly 49% of the City’s revenue mix currently comes from market-driven sources like the food and beverage tax, sales tax, and real estate transfer tax. This makes the City of Naperville reliant on a strong economy to continue to deliver operating revenue which would be at risk come a slower economy.

Opponents point to the fact that the total property tax burden in Illinois is still among the highest in the country and is a driver for out-migration.

Food and Beverage Tax

Another option discussed at length is a potential increase to the Naperville Food and Beverage Tax. This would increase the tax rate on alcoholic and non-alcoholic drinks as well as food purchased at Naperville bars and restaurants.

Proponents argue that this is a voluntary tax paid by the consumer. If you don’t want to pay the tax you can buy less expensive items or less in total. In addition, food and beverage taxes affect consumers at the location, many of whom may not be Naperville residents.

Opponents argue that unlike the City’s portion of the Real Estate Tax, the Food and Beverage Tax rate in Naperville is less competitive. There have been no recent efforts to drive down the rate and further increases will have a distortionary effect on demand. Moreover, Naperville is already heavily reliant on discretionary, market-driven tax dollars and this proposal could increase that exposure.

What Are Your Thoughts?

I want to reiterate that these are not final proposals, vetted and ready to be voted on before City Council on Tuesday. Nevertheless, each potential has significant implications to local businesses and deserves to be poked and prodded. A decision on the Property Tax levy is due near the end of the year, while the food and beverage decision would be due in the first quarter of 2019.

Around Naperville5th Avenue DevelopmentThe City Council is diving deep into the necessary questions raised with the potential 5th Avenue development around parking, DuPage Children’s Museum location, and more. The next action will be Dec. 4, when City Council will receive the report from S.B. Friedman, the City’s Advocate, on their recommendations to date.

Internet Commerce FairnessIn a big win for fairness, Naperville leveled the playing field for local hotel/motel and internet sharing sites. In addition, the City is exploring legal options to demand Amazon and other online retailers collect and remit the home rule sales tax to place them on a level playing field with local retailers.